Palestinian leader Mahmoud Abbas has returned to a hero's welcome in the West Bank after his successful move to upgrade the Palestinians' UN status.
"Now we have a state," he told cheering supporters in Ramallah. "Palestine has accomplished a historic achievement."
On Thursday the United Nations General Assembly voted to recognise the Palestinians as an observer state.
In response Israel halted the transfer of tax revenues to the Palestinian Authority (PA).
The decision, announced on Sunday by the Israeli finance ministry, means 460m shekels ($120m; £75m) will be withheld in December.
The PA, which rules the West Bank, is heavily dependant on tax revenues Israel collects on its behalf.
A ministry spokesman told the BBC the money would instead be used to offset the PA's debts, which include millions owed to Israel's electricity company.
The Israeli decision was announced as Palestinian President Mahmoud Abbas returned to the West Bank from the UN in New York.
He told thousands of flag-waving supporters in Ramallah that the vote to upgrade the Palestinians' status from "non-member observer entity" to "non-member observer state" had shown the international community stood behind the Palestinian people.
"The march was a long one, and the pressures were enormous," Mr Abbas added. "But we stood fast and we prevailed, because we are the voice of these people."
Mr Abbas also called for reconciliation between Palestinians - a reference to the split between the PA in the West Bank and Hamas in Gaza.
On Friday Israel announced it would move ahead with building thousands of new homes in Israeli settlements in the West Bank, in another apparent response to the UN vote.